Invest Your Money In Stocks

Enroll In Your Employers Retirement Plan

If youre on a tight budget, even the simple step of enrolling in your 401 or other employer retirement plan may seem beyond your reach. But you can begin investing in an employer-sponsored retirement plan with amounts so small you wont even notice them.

For example, plan to invest just 1% of your salary into the employer plan. You probably wont even miss a contribution that small, but what makes it even easier is that the tax deduction youll get for doing so will make the contribution even smaller.

Once you commit to a 1% contribution, you can increase it gradually each year. For example, in year two, you can increase your contribution to 2% of your pay. In year three, you can increase your contribution to 3% of your pay, and so on.

If you time the increases with your annual pay raise, youll notice the increased contribution even less. So if you get a 2% increase in pay, it will effectively be splitting the increase between your retirement plan and your checking account. And if your employer provides a matching contribution, that will make the arrangement even better.

If youre at a complete loss, companies like blooom offer hands-off investment management of your 401.

The Power Of Compound Interest

Compounding can work to your advantage as a long-term investor.

When you reinvest dividends or capital gains, you can earn future returns on that money in addition to the original amount invested.

Lets say you purchase $10,000 worth of stock. In the rst year, your investment appreciates by 5%, for a gain of $500. If you simply collected the $500 in prot each year for 20 years, you would have accumulated an additional $10,000. However, by allowing your prots to stay invested, a 5% annualized return would grow to $26,533 after 20 years, thanks to the power of compounding.1

Are You Ready To Invest

Before choosing to invest your money, remember that theres always the risk that your investments can go down as well as up. That means you could lose money.

If youre not sure if youre ready, read our beginners guide to investing

Choosing whether investing is right for you also depends on:

• how much cash you have available
• how old you are
• what your personal circumstances are.

You also need to consider your goals specifically if theyre long, short, or medium term:

• short-term goals are things you plan to do within the next five years, such as take a holiday
• medium-term goals are things you plan to do within the next five to ten years, such as save for a mortgage deposit
• longer-term goals are ones where you wont need the money for ten years or more, such as a retirement fund.

Short-term goals

For your short-term goals, the general rule is to save into cash deposits, such as bank accounts.

The stock market might go up or down in the short-term, and if you invest for less than five years you might make a loss.

Medium-term goals

For the medium-term, cash deposits might sometimes be the best answer. But it depends on how much risk youre willing to take with your money to achieve a greater return on your investment.

For example, if youre planning to buy a property in seven years and you know youll need all your savings as a deposit and dont want to risk your money, it might be safer to put your money into a savings account.

Longer-term goals

Getting advice

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Determine Where To Invest Your Money

After you feel comfortable with the level of help you have decided to take or not to take and the amount of money you want to invest, its time to decide where to invest your moneyfor the long term. When deciding where you should invest your money, youve got plenty of options. These options include:

1. The Stock Market

The most common and arguably most beneficial place for an investor to put their money is into the stock market.

When you buy a stock, you will then own a small portion of the company you bought into. When the company profits, they may pay you a portion of those profits in dividends based on how many shares of stock you own.

When the value of the company grows over time, so does the price of the shares you own, meaning that you can sell them at a later date for a profit.

Index Investing

Index investing is another way of investing in the stock market, but instead of buying a stock in an individual company, you purchase stock in a stock market index, which tracks a number of the largest companies in the stock market.

Over the past 90 years, the S& P 500 which is an index of the 500 biggest companies in the US and a pretty good reflection of the overall stock market has delivered an average annual return of 9.8%.

401K

There are other investment options, beyond the stock market, too

2. Investment Bonds

Investment bonds are one of the lesser understood types of investments. Heres how they work:

3. Mutual Funds

Heres the kicker:

4. Physical Commodities

Focus On Investing For The Long

Stock market investments have proven to be one of the best ways to grow long-term wealth. Over several decades, the average stock market return is about 10% per year. However, remember thats just an average across the entire market some years will be up, some down and individual stocks will vary in their returns.

For long-term investors, the stock market is a good investment no matter whats happening day-to-day or year-to-year its that long-term average theyre looking for.

The best thing to do after you start investing in stocks or mutual funds may be the hardest: Dont look at them. Unless youre trying to beat the odds and succeed at day trading, its good to avoid the habit of compulsively checking how your stocks are doing several times a day, every day.

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How Much Should You Invest

You’ll also need to determine how much you should invest in the stock market. This answer is different for everyone, but in general:

• If you are young, investing a lot of money into the stock market is a good idea since you can likely afford some potential losses.
• If you are getting older, you should still invest a good amount of money, but more strategically and carefully, so you don’t lose your limited investment funds before retirement.

Don’t invest more in the stock market than you can afford to lose. Keep in mind that you have other investments, like your 401 or IRA, in addition to other things, like a savings account or holiday fund, you may need to pay for.

As your past performance experience grows, you can increase your stock funds over time.

Tips For Rookie Investors

• Test the waters with ETFs. Theres a very good reason for the huge popularity of ETFs, which are baskets of stocks that trade like stocks. They are less risky than individual stocks, plus they offer tax benefits.
• Dont go at it alone. Hire a professional wholl have the research and know-how to maximize the return of your investments while minimizing the risk. To find the right advisor for you, use SmartAssets pro matching tool. It will recommend up to three advisors, based on your information.

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How Much Do You Need

Most brokers would require the first trade to be at least $500 which would be referred to as the ‘minimum marketable parcel of shares’. The size of increments or additional purchases thereafter would be at the individual broker’s discretion.

The ASX suggests you should start your share investing with at least $2,000 as a general guide. Understanding the costs involved should help you decide how much you want to invest.

Other Key Things To Know About Investing As A Beginner

The process for investing does not need to be complex. A best practice is to limit investment decisions rooted in speculation, panic, or fear as these feelings can often lead to significant losses and higher risk. The important thing for new investors is to take things slow and strive for consistency.

I would recommend looking for low-cost, broadly diversified ETFs as the easiest way to get started in building their portfolio, says Niestradt. When in doubt, refer to your investing goals as your North Star to keep your emotions and your portfolio on track and remember that investing is a process that happens over time and not overnight.

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EDITORIAL DISCLOSURE: The advice, opinions, or rankings contained in this article are solely those of the Fortune Recommends editorial team. This content has not been reviewed or endorsed by any of our affiliate partners or other third parties.

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Common Mistakes Investor Make

The 2011 Raymond James study noted that individual investors underperformed the S& P 500 badly between 1988 and 2008, with the index booking an 8.4% annual return compared to a limp 1.9% return for individuals.

How to explain this underperformance? Investor missteps bear some of the blame. Some common mistakes include:

Lack of diversification: Top results highlight the need for a well-constructed portfolio or a skilled investment advisor who spreads risk across diverse asset types and equity sub-classes. A superior stock or fund picker can overcome the natural advantages of asset allocation, but sustained performance requires considerable time and effort for research, signal generation, and aggressive position management. Even skilled market players find it difficult to retain that intensity level over the course of years or decades, making allocation a wiser choice in most cases.

However, asset allocation makes less sense in small trading and retirement accounts that need to build considerable equity before engaging in true wealth management. Small and strategic equity exposure may generate superior returns in those circumstances while account-building through paycheck deductions and employer matching contributes to the bulk of capital.

Concentrating on equities alone poses considerable risks because individuals may get impatient and overplay their hands by making the second most detrimental mistake such as trying to time the market.

Calculate How Much Money You Want To Invest

As you decide which investment accounts you want to open, you should also consider the amount of money youll be investing in each account type.

How much you put into each account will be determined by your investment goal outlined in the first stepas well as the amount of time you have until you plan to reach that goal. This is known as the time horizon. There may also be limits on how much you can invest in certain accounts.

The general rule of thumb for retirement goals is to invest 15% of your income each year, but if you started investing later in your career or want to retire early you may want to consider investing a higher percentage. Keep in mind that 15% also accounts for any matches you receive from your employer. This means that you could contribute 10% of your W2 income with a 5% match from your employer to reach a total of 15% to hit this benchmark.

If you live paycheck to paycheck, 15% might seem like a crazy amount to invest. Dont panic: Its OK to start small, even just 1%. The important thing is to get started so your money will grow over time.

Plan how youd like to invest your money. A common question that arises is whether you should invest your money all at onceor in equal amounts over time, more commonly known as dollar cost averaging . Both options have their advantages and disadvantages.

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Decide Your Investing Style

Getting into the stock market looks different for different people. While some people view buying stocks as just thatpurchasing one or more shares in a companychoosing what and how to buy is an important step in the process. Picking individual stocks could give you big gainsor big losses. Putting your money in funds is a safer bet, but you have to watch out for fees.

Read more about your options below before you dive in.

Decide On Your Investment Goals

You should also determine your investment goals. When opening a brokerage account, an online broker such as Charles Schwab or Fidelity will ask you about your investment goals .

• If you’re just beginning your career, an investment goal could be to increase the amount of money in your account. If you’re older, you may want to generate income as well as grow and protect your wealth.
• Your investment goals might include buying a house, funding your retirement, or saving for tuition. Goals can change over time. Just make sure that you define and review them periodically so that you can keep your focus on achieving them.

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The Power Of Dividends And Rising Income

This chart shows that from 1972 through July 31, 2020, dividend payers and growers have outpaced the S& P 500 index and non-dividend payers in annual total return: 9.6% compared with 7.3% and 2.8%, respectively.

Copyright 2019 Ned Davis Research, Inc. All rights reserved. Further distribution prohibited without prior permission. Data 12/31/1971-7/31/2020.

The above chart shows the annual total return from 1972 to 2020 for non-dividend payers, the S& P 500 index, and dividend growers. The smallest bar shows that non-dividend payers had an annual total return of 2.8%. The next bar shows that the S& P 500 Index had an annual total return of 7.3%. The final bar shows that dividend growers had an annual total return of 9.6%, meaning dividend payers and growers have outpaced the S& P 500 index and non-dividend payers in annual total return.

Uses indicated annual dividends on a rolling 12-month basis. Past performance may not be an indication of future results. The S& P 500 is an unmanaged index and is not meant to depict an actual investment. Does not include transaction costs or taxes. Dividends can be increased, decreased, or eliminated at any point without notice.

You Have To Be Patient As An Investor

Warren Buffett is known for the following quote about patience in investing: The stock market is designed to transfer money from the active to the patient.

What this means is that many beginner investors will lose money because theyre too impatient or because theyre looking to make a quick buck from investing.

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Best Stocks For Beginning Investors

As a new investor, it can be a wise decision to keep things simple and then expand as your skills develop. Fortunately, investors have a great option that allows them to purchase shares in hundreds of Americas top companies in one easy-to-buy fund: an S& P 500 index fund. This kind of fund lets you own a tiny share in some of the worlds best companies at a low cost.

An S& P 500 fund is a great option because it provides diversification and reduces your risk from owning individual stocks. And its a solid pick for investors beginners to advanced who dont want to spend time thinking about investments and prefer to do something else with their time.

If youre looking to expand beyond index funds and into individual stocks, then it can be worth investing in large-cap stocks, the biggest and most financially stable companies. Look for companies that have a solid long-term track record of growing sales and profit, that dont have a lot of debt and that are trading at reasonable valuations so that you dont buy stocks that are overvalued.

What Are Common Advantages Of Investing In Large Cap Stocks

Most investors understand the importance of diversification through asset allocation within a portfolio, which is meant to balance out the risk and reward trade-off between equity, debt and cash holdings. Under the equity or stock positions within a portfolio, however, investors have a wide array of investment options, each with different characteristics, advantages and disadvantages.

A large-cap stock investment, defined as the stock of a company with a market capitalization of $10 billion or more, is common among both growth and value investors as a portion of an overall asset allocation.Large-cap, or big-cap, stocks have unique advantages for investors, including stability in size and tenure, steady dividend payouts to shareholders and clarity in valuations.

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Stocks Vs Bonds: 4 Key Differences To Help You Decide Which Investment Is Right For You

As a young professional, theres enough going on in your life that building your wealth may feel like a far-off fantasy. And while a traditional 401 is a great place to start, there are also other methods that can help supplement your savings. Creating an investment portfolio is one simple and practical option to help grow your funds. So, which types of investments are best for you: Stocks vs Bonds? Here are 4 tips to help you with your choices.

Which Investment Account Is Best For Me

Opening the right investment account can help towards attaining your financial goals. Here are some highlights of different accounts:

TD Direct Investing has many account types geared to different situations, including the RESP, RIF, LIRA, LIF and RDSP. Below is a brief description of four popular account types.

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